Aswath Damodaran is what the investing world would call smart money. As a professor of finance at NYU, he wrote Damodaran On Valuation. And yes, that means he wrote the book on valuation. So when you hear that he just dumped AAPL from his portfolio with a cost basis of $5 a share, should you follow suit? Price targets, valuations, and headlines aside, Aswath is simply following the most fundamental rule of investing: if you don’t like the stock, then just get out. Now Aswath doesn’t have a problem with Apple, rather it’s with the type of people currently buying Apple.
“I sold because I’m very uncomfortable with the other people who are holding Apple shares right now. The new investors of Apple scare me. They’re momentum investors. They’ve shifted the game.
“Once stocks become a momentum play, intrinsic value goes out the window.”
As Business Insider notes, “Apple’s new dividend is the latest wrinkle that has complicated things even more. It has created a new class of Apple shareholders: dividend growth investors.”
So what do you do? Apple’s business prospects are still strong and there is no reason why this stock won’t continue to grow, but Aswath’s decision to get out makes a very important point: know the game you are playing. If the investor environment is changing, you need to reevaluate the effect that will have on your investment goals. Will the addition of a dividend hurt the growth potential? Will it attract a different style of investor that could affect short-term swings? Remember, even the most solid company is susceptible to the savagery of short-term traders…
NYUs Aswath Damodaran: Why I Dumped All My Shares Of Apple – Business Insider.